The New Apple TV: Potential Beyond Gaming

It’s now widely expected Apple will announce new Apple TV hardware next week, alongside new iPhones and possibly other products too. The headline feature for the new hardware are significantly beefed-up specs which, in turn, will enable the creation of a wide variety of third-party applications including games, through an open SDK.

Ahead of next week’s announcement, I want to look at the potential for a new Apple TV to transform not just gaming but also video consumption.

Bringing casual gaming to the console

Back in 2006, Nintendo launched the Wii with a stated mission of expanding the number of console gamers (and therefore console buyers). The device was enormously popular. Both the controller and the kinds of games offered were breaks from past patterns and from competitors’ offerings at the time. As such, the Wii sold enormously well for several years. By enabling gaming on the Apple TV, Apple is arguably aiming at a similar strategic objective: taking console gaming beyond the hardcore gamer and expanding the market dramatically. However, Apple isn’t the first company to try this but why should it fare differently when all the others (Amazon, Ouya, etc.) have essentially failed?

Well, for one thing, Apple is bringing one of the largest bases (and arguably the single most lucrative existing base) of casual gamers to the table. iOS on iPhones and iPads is second only to Android in size and likely generates more direct revenue than Android from games and from apps in general. Games are already by far the most popular category on the iOS App Store and typically take up the vast majority of spots on App Store charts. Apple has cracked casual gaming – and specifically the monetization of casual gaming – in a way no one else has. The App Store grosses close to $5 billion a quarter already and, over the next year, will likely generate more than $20 billion in gross sales with 70% of that going to developers and 30% to Apple. Games likely account for over half this revenue, so that’s a significant revenue stream in its own right for both Apple and its developers. None of the others who have tried this approach have had this sort of base of users, developers and – importantly – revenues when they did so.

The thing that sets Apple apart from Nintendo, meanwhile, is that though Nintendo changed some aspects of the console model with the Wii, it left the fundamental business model largely unchanged. The Wii itself was expensive hardware and games continue to be priced very high, as console games always have been. Apple, meanwhile, has an opportunity to bring the low-cost app sales model from iOS to the console, alongside that base of users and developers and a proven revenue model. I’m intrigued by the possibility for the definition of “Universal” apps on iOS to expand to include the Apple TV. And there’s also the interesting prospect of cross-platform gaming, with one participant in social gaming using an Apple TV while others use iPhones or iPads.

Big questions for gaming on the Apple TV

The big questions to my mind about the Apple TV are:

How easy it will be for existing iOS game developers to port their apps?

How effectively the controllers Apple offers (whether the new remote, iOS devices paired to the TV, or new custom controllers) work for gaming on the device (other TV-centric boxes have floundered on this point)?

How will Apple stimulate sales such that there are enough users to attract developers and how it will incentivize developers to get a quick start so as to drive interest from consumers? Without many games, there will be little to attract users to a more expensive Apple TV box and, without many users, the Apple TV will be a far less attractive platform to developers than iOS.

These points are also interrelated, of course – ease of porting apps will drive developer interest while the effectiveness of the gaming experience on the platform will be critical to both developer and user interest. But I think it’s entirely possible Apple will create a huge new opportunity for itself and developers around the Apple TV, based on gaming alone.

Don’t ignore the content opportunity

However, I think focusing on gaming alone misses a big part of the opportunity Apple will create here. Remember, although the Apple TV has been in the market for a number of years, Apple has always been the gatekeeper for the third party apps that make their way onto the box. As such, though there has been significant growth in the number of apps on the Apple TV, it still pales in comparison to Apple’s other platform or even other set-top boxes such as Roku. Major TV and video apps notably absent from the Apple TV include Sling TV and Amazon Instant Video, both of which are present on iOS. One of the attractions of the Roku box in particular has been they offered essentially every video app except Apple’s own, including Netflix, Hulu, Amazon and many others. In a world where usage has been gravitating towards streaming, Apple’s own iTunes store has become less relevant to many consumers.

Neutralizing some competitive advantages and opening up new business models

An open Apple TV SDK also unlocks the door to these popular streaming services, some of which Apple has likely kept off the box for competitive reasons. That may be a downside for Apple, but it should actually make the box more attractive, especially in the period before it launches its own video streaming service. But there’s also a very long tail of more specialized content which could never make its way onto the Apple TV under the current model but might well do so under an open model. Two categories in particular are worth noting. One is the Religion category on the Roku which offers some of the most popular channels, suggesting that some users interested in this content are drawn to the Roku because they offer it. But another category – Fitness channels – might be more lucrative, both for developers and for Apple. Both the Roku and the iOS App Store offer an increasing range of fitness channels and apps respectively. These have some interesting business models associated with them. Rather than buy gym memberships or hire personal trainers, people are increasingly turning to digital subscriptions to fitness and training content. The Apple TV seems an ideal home for this sort of thing. Interestingly, even Craig Federighi mentioned during a demo at WWDC this year he starts the day with a meditation app, which would also be a great fit for the TV. There are lots of business models around video content the Apple TV has hitherto not supported. An open SDK would allow this and, in turn, could drive significant new revenue.

New interfaces required

In time, it still seems highly likely Apple will launch its own TV service but, until it does, there will continue to be many third party TV and video apps on the Apple TV. On the iPhone and iPad, however, this situation is already leading to large numbers of separate, disconnected apps which consumers have to access to find the content they want to watch (see Ben’s piece from earlier this week for his screenshot of video apps on his iPad). The Apple TV is already a little unwieldy with its many icons for different kinds of video content, and this will only get worse with an open SDK. As such, Apple needs to evolve the UI for the Apple TV significantly and the most important feature it could introduce to help with all this is universal search. On the day I’m writing this, reports have emerged the new Apple TV will indeed have universal search and I think that’s critical to the success of the device when it comes to video. Being able to search for specific content first, rather than have to guess at which app might contain it, will dramatically improve the experience. Some of the enhancements to Spotlight search on iOS announced at WWDC should make their way into the Apple TV too, allowing the search function not only to find content within apps, but deep-link directly to it. Allowing Siri on the Apple TV to perform some of this searching without clunky text input through a remote is another critical feature and one I’d expect to see next week.

One last thing I think an open SDK could allow, beyond what has currently been possible on the Apple TV, is interactivity around TV. Competing boxes including the Amazon Fire TV already provide some of this, but I think there’s room for significantly more innovation in this area. Bringing up information about actors on screen, showing two alternative viewing angles side by side for sports events, showing related content from favorite blogs, news sites, or social media, and many other possibilities become available when app makers are free to experiment with how they present their content rather than being constrained by Apple’s traditional UI for third party Apple TV apps.

Timing the last big question

The other big question is timing. Every time Apple has either created a new product with an SDK or released an open SDK for an existing product, it has given developers several months to create apps for it. Given that Apple is announcing the new Apple TV next week, when will it actually go on sale and will that give developers enough time to create compelling apps for it? I’m sure Apple would like the box to go on sale before the holiday gift-buying season starts in earnest, which probably means a November launch, but that seems like a very short window for developers, unless porting their apps really is trivial. The new box is reportedly based on iOS, which should help, but I suspect it may be into early 2016 for some of the better apps for the Apple TV to land.

Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.